Home construction expected to fall short of demand this year
Deficit to put more pressure on housing-starved markets such as Denver
LAS VEGAS » Another day, more troubling numbers for the U.S. housing market.
The National Association of Home Builders forecasts builders will get started on 909,000 new homes across the county over the course of 2018, chief economist Robert Dietz said during a panel discussion at the National Association of Real Estate Editors conference here Thursday. The problem is that figure will fall 300,000 short of demand.
“We continue to under build single-family housing,” Dietz said. “(So) home-price growth should continue to outpace income growth due to the scarcity.”
The prediction jibes with data being tracked by Seattle-based real estate brokerage Redfin. In a newly released assessment of 174 U.S. metro areas, Redfin found that home prices went up an average of 6.3 percent last month over a year ago. In Denver, average home prices crept up just slightly May over April, hitting $415,500. But that figure is 10.4 percent higher than the average price Redfin tracked in the metro area in May 2017.
Housing demand is searing in Denver. Redfin found the average home in the market went under contract just six days after being listed for sale last month.
Dietz attributes the nation’s under-building largely to supply-side pressures. Labor and land shortages continue to plague the industry. A meteoric rise in lumber costs is also dragging down newhome starts.
“The primary factor for it is due to tariffs on Canadian softwood lumber. We have effective 20 percent tariff rate right now on Canadian lumber,” Dietz said at Thursday’s discussion. “A lumber tariff is very much a tax on homeowners and renters.”
A survey of American homebuilders demonstrates that rising lumber costs — up 62 percent since the start of 2017, according to one index that Dietz is tracking — have driven up the costs of a typically built new home by $9,000.
If there is one segment of the market that is moving in the right direction when it comes to meeting demand, it’s townhomes, Dietz said. His research shows that attached housing products such as condos and townhomes make up 12 percent of new-home starts across the country. It’s a housing segment that he feels meets the demands of millennial buyers when it comes to pricing and its ability to fit into more urban neighborhoods.
“When facing a labor and lot shortage, you get more units on a given amount of dirt and more walk-ability,” he said.
Attached homes are a growing segment of metro Denver’s housing mix. In August, nearly three of every 10 new homes going up for sale was of the attached variety, according to real estate researcher Metrostudy. Nearly all of those were townhomes.
Condos, weighed down by an environment of legal uncertainty in Colorado, represented just 4 percent of all new-housing starts over the 12 months before that study was released.
Another drag on the market being monitored by Dietz is local regulatory burdens. The Denver City Council last month voted to ban slot homes — sideways oriented townhomes that had become popular in neighborhoods during the ongoing development boom.
While regulation is a frequent foe of developers, Denver’s ban had a least one fan at the NAREE conference Thursday. Daniel Parolek, principal of California-based design and architecture firm Opticos Design, applauded the move. Opticos, which has worked on a project in Buena Vista, specializes in walk-able communities. Parolek said there are many other design options that developers can employ to increase density and maximize lot usage that fit better into local neighborhood context than slot homes.
“The fact that the city stepped in to address that, I think, is a good thing,” he said. “There are unlimited examples of early 1900s four-, eight- and 12-unit buildings in Denver.”
Whatever the form newhome construction takes, analysts in Las Vegas agree on one thing: There needs to be more of it to combat the country’s affordability crisis.